Cloudonomics: The Business Value of Cloud Computing, + Website

CHAPTER 2

Does the Cloud Matter?

Does IT generally, and the cloud in particular, really matter? A majority of respondents to a recent survey have the cloud on their radar, but apparently only 7% consider it critical.1 Is that prioritization appropriate? Is the cloud strategic, or just a way to purchase and finance mere plumbing? To some the answer is obvious, but as much as those of us active in the cloud space might wish to respond with an unqualified “yes,” the answer requires some thought and due diligence. Moreover, there may not be a single answer: The role and value of the cloud ultimately depend on a variety of firm-dependent factors, such as strategy, the competitive environment, and organizational design and processes.

IT investments by companies now appear to have been definitively linked with productivity increases. However, productivity increases may not necessarily result in profitability or market share increases: If every competitor in an industry is 20% more productive, each could retain those gains—increasing the so-called producer surplus and profitability—or may pass the gains on to consumers—increasing the consumer surplus—as lower prices, in an attempt to undercut the competition and gain share. If all market players execute similar strategies, market share may remain static; this is the Red Queen hypothesis, which has been proposed to explain how, even when different species evolve, they maintain the same relative fitness.2 As Lewis Carroll wrote, “It takes ...